The company achieved revenue of 10.930 billion yuan (YoY +4.5%) in 2022, after deducting non-net profit of 1,346 billion yuan (YoY +2.7%). The company's core business is growing steadily, channel platforms are becoming more and more diverse, and innovative businesses represented by education services and cultural digitization continue to advance. We are optimistic about the leading edge of the company's regional leaders and maintain the “increase in holdings” rating.

Revenue and profit are growing steadily, and book cash reserves are sufficient. In 2022, the company achieved revenue of 10.930 billion yuan (YoY +4.5%), mainly due to increased sales from businesses such as education services and internet sales. Among them, distribution/publishing/logistics services/other businesses achieved revenue of 96.48/27.46/423 million yuan respectively (YOY +5.4%/-3.9%/-10.0%), with internal offsets of 2,039 billion yuan, accounting for 18.66% of revenue (YOY-0.6PCT); achieved gross profit margin of 36.8% (YOY+0.3PCT); achieved return Net profit of the parent was 1,397 million yuan (YoY +7.0%); after deducting non-net profit of 1,346 billion yuan (YoY +2.7%), the non-recurring profit and loss was mainly due to changes in the fair value of transactional financial assets of its subsidiaries, such as Huixuan Hengxin Fund and Wen Xuan Dingsheng, and government subsidies.

By the end of 2022, the company had 7.802 billion yuan in monetary capital on its books, a balance ratio of 38.69%, sufficient cash reserves, and a good asset structure. According to the company announcement, it is proposed to distribute a cash dividend of 3.40 yuan (tax included) to shareholders for every 10 shares, with a total cash dividend of 420 million yuan (tax included), accounting for 30.04% of net profit attributable to the parent in 2022.

The distribution of teaching aids is growing steadily, and internet sales capacity continues to improve. Textbook teaching assistance/education informatization and equipment business/ general book distribution revenue in 2022 was 56.37/303/3.6676 billion yuan (YoY +5.0%/-19.0%/+15.8%) respectively. Textbook teaching aids and general book distribution maintained steady growth. The decline in education informatization and equipment revenue was mainly due to a year-on-year decline in local financial investment and a smaller project scale. In 2022, textbook teaching aids sold 488 million books and sold Manyang 5.923 billion yuan, achieving sales revenue of 5.637 billion yuan (YoY +9.15%), and gross margin of 39.33% (YOY+0.38PCT); general book sales volume was 141 million books, sales of MaYang 6.667 billion yuan, sales revenue of 3.676 billion yuan (YoY +8.85%), and gross margin was 17.42% (YOY-0.54 PCT). The company's online and offline distribution channel system was further improved to continuously improve itself The management and third-party platforms refined their operation capabilities, and actively explored Internet channels such as Douyin, Kuaishou, Bilibili, and Xiaohongshu. The Internet sales business was 2,532 billion yuan (YoY +12.0%).

The publishing business is developing steadily, and online and offline are deeply integrated. In 2022, the company's textbook teaching assistance/general books/printing and materials/press publication revenue was 15.41/8.55/285/051 million yuan (YoY -4.6%/+5.6%/-15.2%/+5.7%), respectively. In terms of teaching aids, textbook teaching aids sold 2,722 billion yuan, achieving sales revenue of 1,541 billion yuan (YoY +1.43%), and gross margin was 45.22% (YOY-0.15PCT). The company focused on the deep integration of traditional paper publishing, digital publishing, and online and offline education, and set up a “Sichuan Education Learning” section on multimedia platforms to improve service quality. In terms of general books, general book sales were 3,387 million yuan, achieving sales revenue of 855 million yuan (YoY -5.6%), and gross margin was 22.08% (YOY-2.15pcts), mainly due to factors such as changes in sales structure and increased comprehensive discounts. The company's brand building has achieved remarkable results. In 2022, its Ming Qin Studio published 22 new books, achieving a publication code of over 400 million yuan; the studio published 10 new books in one volume, “Wu Zetian Research” won the 17th Wenjin Book Award, “The Thoughts and People of Minchu Minchu in the late Qing Dynasty” won the “China Publishing Media Business Daily” influential books in the third quarter, etc.

Promoting the digitalization of education services and culture is expected to open up room for growth. In terms of education services, in 2022, the company continued to optimize and upgrade the “Excellent Education” online service platform, covering a total of 6,319 schools and serving 4,525,800 students. In terms of cultural digitalization, in 2022, 9 of its publishing houses launched 916 new non-paper publications such as e-books and audiobooks; 20 digital publishing projects were selected or received awards such as the National Audiobook Boutique Publishing Project, the first virtual reality press publishing innovation application case list, and provincial copyright demonstration units; the radio drama “Wang Wang Dai Li Dagong” was broadcast over 100 million times in the Himalayas, and the “Shout Your Force” audio brand received over one million views, and was ranked as one of the top ten podcasts in the national publishing industry. Innovative businesses such as digitalization of corporate culture and informatization of education are advancing at an accelerated pace. It is expected that they will rely on their own capital and cultural education content advantages to achieve diversified monetization and open up room for performance growth.

Risk factors: Changes in textbook publishing and distribution policies; changes in tax policies and subsidy policies; rising prices of raw materials such as paper; the number of newborns and primary and secondary school students in Sichuan Province fell short of expectations; project investment progress fell short of expectations.

Investment suggestions: The company's core distribution and publishing business is developing steadily, the diversified expansion of channel platforms contributed to growth, and innovative businesses represented by education services and cultural digitization continued to advance. According to the company's 2022 performance, we slightly adjusted the company's 2023-2024 revenue forecast to 114.10/119.03 billion yuan (previous forecast was 115.54/120.50 billion yuan), adding 12.217 billion yuan to the 2025 revenue forecast; adjusted the company's 2023-2024 net profit forecast to 1,501/1,602 billion yuan (previous forecast was 1,413/1,465 billion yuan), adding 1,692 billion yuan to 2025 net profit forecast; the current stock price corresponds to 2023~ 2025 PE10.0x/9.4x/8.9x Referring to the valuation level of the top 20 publishing companies by market capitalization under the CITIC industry classification (median PE of 2023, 12x), we gave the company 12x PE in 2023, with a corresponding target price of 14.6 yuan, maintaining the “increase in holdings” rating.